Arbeitspapier

Optimal Income Taxation with Composition Effects

We study the optimal nonlinear income tax problem with multidimensional individual characteristics on which taxes cannot be conditioned. We obtain an optimal tax formula that generalizes the standard one by averaging, with specific weights, the sufficient statistics of individuals who earn the same income. Our first main contribution consists in showing that multidimensional heterogeneity brings a new source of endogeneity to the sufficient statistics that we call composition effects. We highlight that composition effects may substantially affect optimal marginal tax rates. Our results put the stress on the need for empirical studies on sufficient statistics for different demographic groups e.g., according to gender, age, ethnicity. As a second main contribution, we show the equivalence between the tax perturbation and mechanism design approaches which bridges the gap between both methods that have, so far, been used separately in the literature.

Sprache
Englisch

Erschienen in
Series: IZA Discussion Papers ; No. 11019

Klassifikation
Wirtschaft
Taxation and Subsidies: Efficiency; Optimal Taxation
Thema
optimal taxation
multidimensional screening problems
tax perturbation
allocation perturbation
sufficient statistics

Ereignis
Geistige Schöpfung
(wer)
Jacquet, Laurence
Lehmann, Etienne
Ereignis
Veröffentlichung
(wer)
Institute of Labor Economics (IZA)
(wo)
Bonn
(wann)
2017

Handle
Letzte Aktualisierung
20.09.2024, 08:24 MESZ

Datenpartner

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ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. Bei Fragen zum Objekt wenden Sie sich bitte an den Datenpartner.

Objekttyp

  • Arbeitspapier

Beteiligte

  • Jacquet, Laurence
  • Lehmann, Etienne
  • Institute of Labor Economics (IZA)

Entstanden

  • 2017

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